The American Can Case

• Date: 01 March 1980
• DOI: 10.1177/0003603X8002500105
• Author: David Flath
• Published date: 01 March 1980
• Subject Matter: Article

The Antitrust Bulletin/Spring 1980

The American

Can

case

BY DAVID FLATH *

169

The manufacture of cans and can-closing machinery was highly

concentrated throughout the first half of this century, American

Can Company and Continental Can Company being the two

major firms in both industries. The government had sued for

dissolution

of

American in

1913,

and lost, the judge declaring

himself "frankly reluctant to destroy so finely adjusted an in-

dustrial machine as the record shows defendant to

be."

IIn

1946,

the government again filed suit, this time against both

American and Continental. 2At issue was the tying of cans to

closing machinery, and sale of cans under multiyear require-

ments contracts. A consent decree

of

1951

enjoined the com-

panies against these arrangements.

American Can has since attracted the attention of numerous

antitrust scholars.

Of

particular interest here is the fact that the

case has been offered as an empirical example of practically

every different theory

of

tying sales,' including: extension of

*North Carolina State University.

AUTHOR'S NOTE: Much

of

this article is based upon my Ph.D. disserta-

tion in economics, UCLA.

I230 F. at 903.

2U.S. v, American Can Company et al., 87 F. Supp. 18 (1949),

henceforth referred to as American Can. Continental Can Company

agreed prior to the trial to accept any decree other than dissolution.

3James W. McKie,

"The

Decline of Monopoly in the Metal Con-

tainer Industry," 45

Am.

Econ. Rev. 499 (May

1955)

adopts the

view

©1980by Federal Legal Publications, Inc.

170 The antitrust bulletin

monopoly, establishment of barrier to entry, appropnanon of

economic rent, and allocation of risk-bearing. The object of this

study is to identify which of these or other theories is consistent

with the facts presented in the trial documents and transcripts or

available from other sources.

This exercise represents the application of economic theory

to an unusual set of facts, rather than a review of legal doctrine

and precedent.

Part

I describes economic theories

of

tie-in sales

and establishes criteria for determining which theories are appli-

cable in any particular situation. Guided by this discussion, part

II describes facts relevant to analysis of the can tie-in.

Part

III

joins facts and theory in considering which economic theories of

tying actually apply here.

I. The economics

of

tying sales

There now exists an extensive literature regarding economic

theories of tying sales.' These remarks will therefore be kept

of the courts, arguing that the tie-in permitted

"the

moderate advan-

tage which the major sellers possessed in closing machinery [to be]

extended forward and magnified in the can market." Compare this

with Standard Oil Company v. U.S., 337 U.S. at 305. The same

argument is echoed again in Charles H. Hession,

"The

Metal Con-

tainer Industry," in Walter Adams, ed., The Structure

of

American

Industry 310 (1971).

George Hilton, "Tying Sales and Full Line Forcing," 81 We/twirt,

Arch. 265 (1958) argues that the tying device could have been used to

appropriate economic rent on the patented closing machinery (at 271),

but also suggests its advantage may have been in allocating capital

risks to the lessor (at 272). M.L. Burstein,

"A

Theory of Full Line

Forcing," 55 Nw. Univ, L. Rev. 62 (1960) identifies American Can

with the same two arguments as Hilton (at 64, and at 71), and offers a

third explanation: he speculates that American was securing rents in

both closing machinery and cans but that entry would have dissipated

rents in cans were it not for the tying device (at 66, and at 68).

4The main references are listed here chronologically: Aaron Director

and Edward H. Levi,

"Law

and the Future: Trade Regulation," 51 Nw.